STOCK MARKET CORRECTION! Biden Taxing Unrealized Gains?
What you need to know, now!
Emotions Run Wild After A Wild Bull Run
The S&P 500 rallied over 1,100 points ( 28.35% ) since its October 27 low of 4,103.
Throughout the 22 week rally the market went without a pull back greater than 2.5%.
It’s important for investors to know: Stocks go up; and Stocks go down.
Keep your emotions in check.
As the market falls into correction, it is important that we watch closely the sectors that are holding up and bucking the bear trend.
Following the money to identify sector rotation as institutions sell down high beta stocks and rotate profits to “hide out” in safe haven sectors.
XLU 0.00%↑ Utilities Select Sector
A tale as old as time, a stock market correction and strength in boring old utilities.
The brunt of the general market sell off has been dominated by big tech, software and semiconductors - with many individual names up triple digits going into the sell off.
A lot of that money is rotating into safe sectors such as utilities with the XLU 0.00%↑ catching a nice bid, up over 7% since April 16.
As shown in the table above, the the XLU 0.00%↑ is filled with boring companies such as American Electric Power Company AEP 0.00%↑ and Constellation Energy Corp CEG 0.00%↑
Often, institutions will add exposure or rotate into these safe haven companies/sectors during uncertainty or after they have sold down some notable high octane holdings.
XLF 0.00%↑ Financial Select Sector
Another sector holding up better than the general market is the financials.
As we tread into earnings seasons, major bank earnings were a bright spot - confirming our suspicions of a turn around in deal making on Wall Street.
On January 5, 2024 we published In 2024....... Be Selfish where we forecasted a recovery in Investment Banking activity, IPO’s and Private Equity.
Last week Goldman Sachs GS 0.00%↑ reported that 1Q24 Investment banking fees were significantly higher y/y.
Investment banking fees rose 32% to $2.08 billion, driven by higher fees from underwriting debt and stock offerings, as well as advising on mergers.
"We're in the early stages of a reopening of capital markets," CEO David Solomon told investors on a conference call, citing rising risk appetite among investors for initial public offerings and solid debt underwriting activity. "We continue to be constructive on the health of the U.S. economy." - Reuters
Shares of Goldman Sachs are holding above its 50 day moving average and consolidating just below a new all time record high for the stock.
Full Year EPS for Goldman Sachs is seen recovering into 2025
2021 EPS: $59.45
2022 EPS: $30.06
2023 EPS: $22.87
2024 EPS: $35.97*
2025 EPS: $40.07*
Investment Banking revenue was up 27% at JPM 0.00%↑ to $2.0B.
Investment Banking revenue was up 16% at MS 0.00%↑ to $1.45B
Investment Banking revenue was up 35% at BAC 0.00%↑ to $1.57B
Strength in the financial sector is a positive sign for the health of the U.S. Economy and prospects for the market moving forward.
XLE 0.00%↑ Energy Select Sector
The rotation continues out of technology into Utilities, Financials and even Energy.
The XLE 0.00%↑ is rallying again after a back test from the break out into new record highs - trading above its key 50 day moving average.
Crude oil continues to hold steady above $80/barrel - currently trading at $83.41 as tensions rage on in the middle east.
The energy sector should continue to perform well assuming crude remains above $80.
Chevron CVX 0.00%↑ ExxonMobil XOM 0.00%↑ Imperial Oil IMO 0.00%↑ are all slated to report earnings tomorrow, April 26.
Stay Alert
As the market correction toils on we need to be watching for the S&P 500 to break back above its 50 day moving average.
Many individual stocks are damaged, watch for bases to begin building - price action to regain major moving averages and beaten down sectors to recover.
This correction is going to present fantastic opportunities to get back into market leaders as they reset, find a floor and build out new emerging bases.
Use the iShares Semiconductor ETF SOXX 0.00%↑ as your guiding light.
There is no bull market without participation from semiconductors.
The health of the semiconductor sector is imperative for a sustainable bull market - the 200 day moving average on the SOXX 0.00%↑ is $183.70.
Corrections are normal and necessary in secular bull markets - the bull is in play so long as we don’t have a harsh break to the downside through the 200 day on heavy volume.
Even if we trade sideways and chop around through the spring, we are expecting this market to set up again for a leg higher upon conclusion of this correction.
Look to the top 10 holdings in the S&P 500 - what percentage of stocks are trading above their 50 day? 200 day?
MSFT 0.00%↑ Below 50 Above 200
AAPL 0.00%↑ Below 50 Below 200
NVDA 0.00%↑ Below 50 Above 200
AMZN 0.00%↑ Below 50 Above 200
META 0.00%↑ Below 50 Above 200
GOOGL 0.00%↑ Above 50 Above 200
LLY 0.00%↑ Below 50 Above 200
JPM 0.00%↑ Above 50 Above 200
It is interesting to note that there are only two stocks in the top 10 that are trading above both their 50 day and 200 day moving averages - one name JPM 0.00%↑ is a major bank in one of the leading sectors discussed above.
The market needs upbeat earnings prints from Microsoft, Amazon and Google.
More Inflation News: Coming In Hot
The Fed’s primary inflation gauge, the core PCE (personal consumption expenditures) price index, rose at a 3.7% annual rate in Q1, above 3.4% expectations.
This comes after a much hotter than expected CPI print of 3.5% in March.
More confirmation that inflation will be sustained above 3% and that the probability of a rate cut this summer is slim to none.
We have just 5 days until the next Federal Open Market Committee Meeting and we fully expect a much more hawkish Jerome Powell as he addresses the nation regarding monetary policy.
According to the CME FEDWATCH TOOL the market believes a rate cut this summer is all but out of the question.
Higher for longer is the official narrative with a slim chance of a rate cut for the Fall 2024.
The U.S. 2 Year Yield is back at 5% looking to test the 5.25% high set in October 2023.
Higher yields can put pressure on stocks, particularly high beta growth stocks that are currently struggling as the general market falls into correction.
It is not only stocks Americans should be worried about - higher interest rates and reckless government spending are sending the country down the path of a possible debt spiral.
The U.S. National Debt is rising by about $1 Trillion every 100 days - thats right $1 Trillion every 100 days.
Higher rates may be great for savers compounding their wealth in money market funds yielding over 5% - but our debt is also compounding at a staggering rate.
Unfortunately our politicians only solution is to increase taxes, no cut spending.
Biden’s proposed 2025 Budget would send the Capital Gains Tax Rates to the highest level in 100 years, 44%.
They would also propose a 25% tax for high net worth individuals on unrealized gains.
An incompetent government does not deserve additional tax revenue if they are poor stewards of what we bring in already - it’s time to cut up the credit cards!
The good news - the likelihood of this passing is slim to none.
VIX Collapse
The VIX is starting to collapse from its blow off to 21 last week - historically it is opportune to short volatility after a major rally in the VIX.
With the VIX following through to the downside - this provides additional confirmation that the worst of the correction is over.
Corrections tend to happen in three waves down before resuming the uptrend, your line in the sand is 4,995 on the S&P 500.
Expect more choppy action moving forward especially during earnings season.
The market needs a big report out of Microsoft, Amazon and Google.
Video Coming Soon
Coming soon! Behind The Street will be publishing market update videos every other day and a market outlook video on Sundays.
Stay tuned for an official launch date, we will upload on YouTube.
Thank You
A big THANK YOU to all of our clients! Without your support we wouldn’t have been able to secure #1 Medium Team - Transactions.
Updates
The Behind The Street Newsletter will be published every other Thursday.
The Behind The Street Newsletter is for educational use only, not financial advice.
The newsletter will have a focus on financial markets, equities, fixed income, real estate and a market update section focusing on New York City & Miami real estate.
I have joined the Kirsten Jordan Team at Douglas Elliman About Me Click Here
If yourself, a family member or friend is looking to buy, sell or rent anywhere in New York or Miami please contact me: Thomas.Malloy@elliman.com
We also work with institutional clients looking for exposure to NYC and Miami.
I’m looking forward to the market update videos
Since you're a big supporter of the "The Big Lie Idiot" in your next newsletter put in it where Trump wants to take over the Federal Reserve.